SEBI Reclassifies REITs as Equity Instruments: What It Means for Your MF Portfolio
In a significant move to enhance participation in India’s growing real estate investment market, the Securities and Exchange Board of India (SEBI) has reclassified Real Estate Investment Trusts (REITs) as equity-related instruments for mutual funds and Specialized Investment Funds (SIFs).
The change follows a gazette notification issued on October 31, 2025, and will come into effect from January 1, 2026. The market regulator stated that this step is designed to make it easier for funds to invest in REITs at a time when investor appetite for real estate-backed securities is on the rise. Previously, REITs were not classified as equity instruments, which limited their inclusion in certain fund categories.
What Changes for Mutual Funds and Investors?
With the reclassification, any investment made by mutual funds and SIFs in REITs from 2026 onwards will now be treated like an equity investment. This could potentially increase exposure to real estate assets across equity-oriented schemes. However, Infrastructure Investment Trusts (InvITs) will continue to remain classified as hybrid instruments, meaning only REITs receive the upgraded equity status.
Existing REIT holdings in debt schemes as of December 31, 2025, will be grandfathered—they won’t need to be immediately sold. Nevertheless, SEBI has encouraged mutual fund houses (AMCs) to gradually divest these REIT units from debt schemes, keeping investor interest, liquidity, and market conditions in mind. The industry body, the Association of Mutual Funds in India (AMFI), has also been asked to update its scrip classification list to include REITs according to their market capitalization.
Scheme Documents to be Updated; No Fundamental Change
AMCs will issue addendums to reflect the new classification in scheme documents. SEBI has clarified that this will not be treated as a “fundamental attribute” change, meaning investors won’t face any mandatory exit window or consent requirements. Additionally, SEBI has specified that REITs can be added to equity indices only after July 1, 2026, providing a six-month buffer to allow the market to adjust to the new framework.
Regulatory Fine-Tuning
The amendment also introduces certain threshold adjustments. Mutual funds can now hold up to 15% of REIT units issued by a single issuer, aligning with existing limits on equity ownership. Corresponding limits for SIFs have been adjusted to ensure that combined holdings of mutual funds and SIFs in a single REIT stay within defined boundaries. The regulator emphasized that these changes are aimed at protecting investor interest and promoting the orderly development of the securities market.
